NXP Semiconductors expands; Cheniere extends gains; Horizon Pharma deal looks ‘cheap’

By Rebecca Melvin

New York, March 5 – Convertibles were notably quiet on Thursday despite three deals on the calendar for pricing after the market close. Equities managed to snap a two-day losing streak, eking out small gains ahead of Friday’s February U.S. jobs report.

The market was “super quiet,” a New York-based trader said. A second trader said it was another quiet day in what has been a quiet week.

The muted tone was chalked up by one market source to the fact that there was another winter storm hitting the New York metropolitan area on Thursday. “It’s a snow day,” he said.

A second source said that the market is digesting a couple of very large, recent new issues.

“It seems like deal fatigue. People need a break to assess what they own; the convertible strategy has done pretty well so far this year. Other strategies haven’t fared so well, and maybe there is a little bit of rotation going on,” the New York-based trader said.

NXP Semiconductors NV’s convertibles improved on Thursday as trading action in that issue continued after a surge on Monday following news that the Dutch semiconductor components company has agreed to buy Freescale Semiconductor Ltd.

Cheniere Energy Inc.’s 4.25% convertibles traded up again on Thursday, extending gains notched on Wednesday on their debut in the secondary market after $625 million of the 30-year notes priced at 80.

The new Cheniere notes traded at 83.4 in the early going Thursday, according to Trace data. That was up nearly a point on an outright basis from Thursday. Meanwhile, shares of the Houston-based energy company ticked lower in the early going but ended down only 2 cents at $78.41.

The Cheniere deal “fills a lot of voids as it has a lot of bells and whistles,” a New York-based trader said, adding that it holds appeal for hedged convertibles players.

Elsewhere, news of AbbieVie Inc.’ takeout of Pharmacyclics Inc. was putting a bit of a bid in the biotech/health care space, a trader said.

AbbieVie said it will buy Pharmacyclics for $21 billion, or $261.25 per share, in cash and stock. Sunnyvale, Calif.-based Pharmacyclics is an oncology company, so oncology names were particularly in focus, the trader said.

Medivation Inc.’s 2.625% convertibles due 2017 were seen to have jumped to 247 from 235.8 with shares of the San Francisco-based oncology company up 5%, or $6.07, at $127.08, according to a market source.

Tarrytown, N.Y.-based biotech Regeneron Pharmaceuticals Inc. saw its 1.875% convertibles lifted to 510 from 490, with shares moving up $15.91, or 4%, to $428.95.

Also in health care, IGI Laboratories Inc.’s 3.75% convertibles due 2019, which priced originally in December, were down with a slump in the shares of the Buena, N.J.-based specialty generic pharmaceutical company.

The IGI convertibles were seen down at about 107 from 115, while the shares fell 12% to $9.43. Shares have been on a down slope since the company reported earnings earlier in the week.

Meanwhile, there were three new deals cued up for pricing after the market close.

Horizon Pharma plc plans to price $300 million exchangeable senior notes. The deal was seen as “cheap paper,” according to one trader. Horizon shares closed down 33 cents, or 1.6%, to $20.84.

InterDigital Inc. plans to price $275 million of five-year convertible senior notes. InterDigital shares were down $1.94, or 3.5%, at $53.61.

And Consolidated-Tomoka Land Co. plans to price $75 million of five-year convertible senior notes.

Consolidated-Tomoka shares were down $5.25, or 9%, at $54.04.

The Horizon Pharma deal was seen as pretty cheap, and both the Horizon Pharma and InterDigital deals were looking like they were getting a positive reception, a trader said.

Otherwise it was “the slowest day in weeks,” the trader said.

NXP Semi expands on swap

NXP Semiconductors’ 1% convertibles due 2019 closed at about 118.25 bid, 118.75 offered, a trader said with the underlying shares down 80 cents, or 0.8%, at $98.67.

That was a 0.75 point to point expansion on a hedged basis.

There was chatter about the name being up for an investment-grade rating.

“Everyone is trying to get in ahead of the demand by IG funds once that happens,” a trader said. And if it does happen, it will go up from there, he said.

A second source said that Thursday’s move looked to be connected to the IG rating possibility. “People are wishfully thinking things,” the trader said.

A third source was skeptical. “Everything else is BB-. How are they going to get that much of an upgrade?” the trader said.

On Monday, the NXP convertibles and shares jumped after NXP and Freescale announced their $40 billion merger. The combined companies will be a leader in automotive semiconductors and general purpose microcontroller products. NXP is based in the Netherlands, and Freescale is based in Texas.

Under the terms of the agreement, Freescale shareholders will receive $6.25 in cash and 0.3521 of an NXP ordinary share for each Freescale common share held at the transaction’s close.

The purchase prices implies a total equity value for Freescale of about $11.8 billion and a total value including debt of about $16.7 billion.

NXP expects to fund the transaction with $1 billion of cash from its balance sheet, $1 billion of new debt and about 115 million NXP ordinary shares.

Mentioned in this article:

Cheniere Energy Ltd. NYSE: LNG

Consolidated-Tomoka Land Co. NYSE: CTO

Horizon Pharma plc Nasdaq: HZNP

IGI Laboratories Inc. NYSE: IG

InterDigital Inc. Nasdaq: IDCC

Medivation Inc. Nasdaq: MDVN

NXP Semiconductors NV Nasdaq: NXPI

Regeneron Pharmaceuticals Inc. Nasdaq: REGN

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